We’re on to #9! In this second-to-last post in our series covering the top ten 2024 supply chain trends announced by the Association for Supply Chain Management (ASCM), we’ll take a look at Green and Circular Supply Chains.
Previous posts in this series include:
And next week, we’ll wrap up the series with #10: Geopolitics and Deglobalization of Supply Chains
Sustainability: An imperative of the new-normal supply chain
Sustainability has become an imperative of the new-normal supply chain — with both circularity and various green initiatives playing a role.
Here, we’ll focus on why circular supply chains are increasingly shifting from the “nice-to-have” column to a “must-have” operational approach. To do that, we’ll include expert perspectives from Oracle, Bain & Company, and EY. We’ll also provide a quick overview of the State of Supply Chain Sustainability 2023 report, published by the MIT Center for Transportation & Logistics and the Council of Supply Chain Management Professionals.
The growing importance of circular supply chains
Oracle’s Mark Jackley describes the growing importance of circular supply chains, citing pressure from consumers, activists, and government regulators who are all pushing manufacturers to “protect fragile ecosystems.”
Jackley describes a circular supply chain as one that “uses materials and goods as long as possible, instead of letting them go immediately to waste.”
“In a circular supply chain, manufacturers reuse raw materials such as plastic, metal, cardboard, paper, steel, and glass,” he writes. “They refurbish and resell previously owned goods. They and their retailers rent products instead of selling them. And they choose recycled pallets and other green storage and packaging solutions.”
In contrast to linear supply chains that “proceed in a straight line from suppliers to manufacturers, distributors, retailers, and consumers” — who then throw away their packaging and eventually their products — Jackley says circular supply chains form a “loop” which involves returns rather than disposals.
“In a circular supply chain, manufacturers think green every step of the way,” he writes. “They use recyclable materials when designing products and packaging. They ensure that products are easy to disassemble and return for repair. They collaborate with stakeholders—retailers, local governments, and green nonprofit groups—to educate consumers on proper waste disposal, making it easier to collect and recycle various materials.”
Jackley says circular supply chains offer key benefits for businesses, including:
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Lower costs — since spending on new materials can be reduced
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Supply chain resilience — since using recycled materials can help overcome supply disruptions
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Increased sales — to consumers who are concerned about the environment
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Improved employee relations — since they help address the concerns of “environmentally conscious employees and shareholders who closely examine a company’s environmental, social, and governance performance”
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Noting that the creation of a circular supply chain requires manufacturers to “rethink each aspect of their operations” in an effort to reduce waste, Jackley also offers eight specific circular supply chain strategies that can help:
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Design for circularity: “Design products that are easy to recycle and repair. …”
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Reuse and refurbish: “Reuse products and refurbish them for resale. …”
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Recycle materials: “As much as possible, use recycled materials when making new products. …”
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Minimize waste: “Create less waste by using recycled materials or designing products consumers can safely dispose of. …”
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Focus on transparency: “Be clear with the public about your circular practices, including which suppliers you use and the materials they furnish. …”
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Collaborate with suppliers: “Work closely with suppliers to source recyclable materials. …”
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Use technologies that enhance recycling and reuse: Such as blockchain and Internet of Things (IoT)
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Educate consumers: About the what and how of recycling
Circularity and the tech industry
In “How Companies Can Build a Supply Chain for the Circular Economy,” Bain & Company consultants describe how the tech industry can benefit from a key aspect of the circular supply chain that Jackley cited: reselling and recycling products.
Noting that circularity can be “particularly challenging” for tech players due to complex supply chain dynamics, they say the potential benefits are still significant.
“As inflationary pressures hit commodity markets and supply chain bottlenecks threaten to limit access to raw materials, executives are looking for new and innovative ways to ensure access to alternative sources of supply,” they write. “Circularity also helps manage competition from other sectors for strategic materials…”
An additional benefit? Satisfying eco-minded consumers who want to buy from environmentally friendly companies.
Referring to such dynamics as “carrots,” the consultants say there are also “sticks” — including the need to embrace circularity to meet regulatory requirements; the shift to “as-a-service” models in which providers own the physical products and circularity can help boost profits; and the growing pressure from private equity investors who will be happy to reap the rewards of “second- and third-use revenue streams” if tech hardware providers don’t.
As tech companies work toward meeting circularity goals, the consultants say there are three key priorities to keep in mind:
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Identify new ways to create value. “Companies that view circularity through an investor’s lens can get a jump on competitors by identifying new control points and business models that take advantage of them. …”
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Anticipate disruption. “Leaders plan for the possibility of their profit pools being disrupted by more circular rivals. …”
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Plan to scale. “Companies will need to do three things to scale their circularity solutions. First, they’ll need to design products that can be repaired, refurbished, recaptured, and reused with less risk of damage, and are better suited for extracting recyclable materials. Second, supply chains will need to adapt to a more circular model, which means products must be more traceable. …Third, tech hardware makers will want to use technology to help disassemble products and optimize the mix of new and used. …”
Circularity and the “great supply chain reset”
In “How the great supply chain reset is unfolding,” EY’s Matthew Burton cites a “resilient, circular operating model” as one of the five key elements of the “great supply chain reset.”
Similar to the comprehensive approach Jackley describes, Burton says that within such a model, circularity and sustainability will be embedded into the “design, sourcing, manufacture, and transportation of products.”
Referring to “sustainability by design” as an imperative, he writes that “In a future circular economy, products will be engineered to last, be able to be constantly repaired and upgraded, with any redundant parts recyclable.”
Like others, he says such an approach will open new revenue streams, but specifically underscores a “modular design” in which various parts can be “easily replaced and serviced.”
“The production process will avoid exploiting scarce mineral resources and water, be energy-efficient and net zero, and minimize waste and pollution,” Burton writes.
Two related key elements he also describes are “automation and cognitive decision support” — which can help to increase supply chain transparency in support of ESG goals — and “collaborative relationships built on value,” rather than cost.
“Although manufacturers should aim for a diverse range of suppliers to spread geographical and geopolitical risk, they also need sufficient depth of business to develop trusted strategic relationships,” Burton says.”
State of Supply Chain Sustainability 2023
In the fourth annual State of Supply Chain Sustainability 2023 report, published by the MIT Center for Transportation & Logistics and the Council of Supply Chain Management Professionals, researchers say findings indicate that certain types of crises had a greater impact on supply chain sustainability than others.
Although “large-scale network disruptions” like the pandemic and Russia’s invasion of Ukraine seemed to increase organizational commitment to sustainability efforts, economic hardship appeared to have the opposite effect.
Results also indicated that greater commitments to sustainability seemed to be concentrated in wealthier countries, which “gives rise to concern about whether the global ambitions of net-zero goals can be achieved with only localized adoption.”
Noting that this is the fourth consecutive year for the report, its authors also said they could see that some things haven’t changed.
“In this period, pressure on supply chain professionals to improve their firms’ supply chain sustainability profile grows every year across every measure that we track,” they write. “And every year, the path towards achieving those goals appears to cross supply chains. This year we see that collaboration across supply chains appears to be especially important as firms struggle to measure and to reduce their Scope 3 emissions.”
For detailed findings, please access the full report.
